Lastminute.com did a
great job of giving the e-naysayers an opportunity to forecast
the end of the technology boom in world stock markets; but
perhaps the disappointing sag in the price when the shares
became tradable was the fault was the greed of those who set
the price of the share offer. So this specific example of
over-pricing might not herald the end of e-civilisation as we
know it - but since all "dot coms" are grotesquely
over valued when measured with the yardsticks of olde world
bricks and mortar businesses, then it might just be enough to
start to poke a hole in the fragile dam of confidence that is
holding up the valuations in this sector.
Offerings (IPOs) are when companies sell part (never all) of
their shares to the public via some public stock market. The
rules and regulations surrounding these offerings are quite
something to behold, and are designed to prevent unfair
advantage being gained by anyone with inside knowledge. Such
IPOs create "paper millionaires" aplenty, because
the terms of the offer nearly always mean that the founders of
the business agree not to flog their holding and run for the
barn screaming "yippee!" Instead, they are obliged
to hang about and see if their promises come true before being
allowed by the new shareholders to "cash out" with
their gains ...if there are to be any. And even when the
period of "restraint" expires, the market closely
watches the personal holdings of the shareholders present at
the IPO, and any attempt for a founder to sell is regarded as
a big hint that it's time to be careful, so maybe all the
stock holders should take the hint, and run for the barn, too.
And one day, it's not going to be "Yippee!"
that's being shouted, it's going to be "Arrrrghhh!"
After all, if the
founders of the business can think of something better to do
with their own money than invest it in their own business,
then why should Joe Public do different..? The usual answer to
such probing is that the founder is seeking "prudent
diversifiation", ie not keeping all their eggs in one
An older stock market
darling is games publisher, Eidos - creators (inflaters?) of
Lara Croft. Eidos shared halved in value one day in March as
the result of the most dreaded thing in stock tradinga
"profits warning". Which is stockspeak for admitting
that the profits that you have been hinting that your business
is going to make are unlikely to be met.
But at least Eidos is
making a profit - £38m on sales of £226m last year, in fact.
There are precious few dot coms doing that sort of thing.
However, the fickleness of the computer games business is an
unnerving thing. The expression "easy come, easy go"
springs to mind. So why, if the stock market only likes safe
bets, is it going bonkers with untried dot coms..? Search me.
In fact, why not
search Ask Jeeves UK site at www.ask.co.uk and pose the
"how do I keep a
pig at home"
And you will quickly
discover that spending a fortune with the eager advertising
industry to tell the UK TV audience about your wonderful web
site is likely to be an excellent way of getting through your
shareholders' funds before the first AGM, and thus before
anyone has time to ask awkward poignant questions about the
validity of your business model.
I think perhaps the
most interesting response I got back was "How do I buy a
new home in Alabama", closely followed by the link to
"Dr Pig's infamous pants-index"
capitalists are still saying that all that matters for a dot
com is winning the race to own a "market space", and
they simply don't have the plot or the market space.
More like “dotty
com”. Any proposition that is merely a website can be undone
by the next website covering the same market space that is
willing to spend more to buy in. Arguably, the next web site
along doesn't need to spend so much developing the idea and
concept, and simply concentrate on stealing the
"space" by being cheaper and more blatant. It can
also cherry pick elements of the "space" and avoid
the 80/20 paradox that afflicts all B2C endeavours.
In other words, no
matter how a shopkeeper tries, 80% of his turnover is
generally represented by only 20% of his stock lines. In the
world of the web, a site that wants to cherry pick a specific
market genre can set up www.stepscds.com and run a very
efficient business with perfect targeting and stock
management. While a general CD vendor is going to be stuck
listing Doris Day, Pavarotti and all sorts of other stuff that
only adds to their overheads as far as Steps fans are
We’re still learning
about this cyber lark, and by the time you read this, the dot
com mania might well have a big dose of reality. Let’s hope
that more thoughtful companies whose business models are not
vulnerable to madness marketing budgets do not also gets
sucked down with the daft ones.